Latest from the Bank of Canada: Yet another rate hike, but the end may be near

Expectedly, the Bank of Canada increased its overnight rate this morning by another 50 basis points to combat inflation. This is the sixth time this year that the Bank has tightened money supply to quell inflation, so far with limited results. 

Specific to existing Variable Rate Mortgage holders, Prime will increase from 5.45%. to 5.95% 

BoC Announcement Highlights: 

• Global inflation remains high and as economies begin to slow down and disruptions in supply chains ease, inflation is expected to follow suit. 
• The Canadian economy continues to operate in excess demand and labour markets remain tight, with a projected GDP growth from 3.25% in 2022 to just under 1% in 2023. 
• Due to recent rate increases, housing activity in Canada has sharply declined, and household spending has softened. 
• The strength of the US dollar is putting additional pressure on inflation in many countries around the globe and the Bank expects no growth in their economy through most of 2023. 
• CPI inflation has declined from 8.1% to 6.9%. Price pressures remain broadly based, yet the Bank’s “preferred measures of core inflation are not yet showing meaningful evidence that underlying price pressures are easing.” 

Nest Summary 

“We are getting closer to the end of this tightening phase. But we're not there yet." – Tiff Macklem 

The Bank reiterated its “resolute commitment” to restore price stability for Canadians and said it will continue to take action as required to achieve its 2% inflation target. Achieving this target will take time, and more monetary tightening, such as a 25bpt hike in December, is expected. 

The Bank has offered the observation that CPI inflation is projected to move down to ~3% by the end of 2023, and then return to its ~2% target by the end of 2024. 

Although no crystal ball exists, we are likely nearing the end of the rate increase cycle, and we may see rates flatten in 2023. Should a recession ensue in the near-term, this would apply downward pressure on rates late next year and beyond. 

For variable rate holders specifically – 

• Watch for the BoC to judge further increases based on economic performance between now and the final announcement of the year on December 7th, 2022.   
• We will issue further options and recommendations for existing variable rate holders in the coming days. 

Source: https://www.nestmortgage.co/bank-of-canada-summary-october-2022